Iridium Communications Inc

And welcome to the Iridium Communications Second Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode for the duration of the call. And should you need any assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. And to withdraw a question, please press star, then two. Please also note that this event is being recorded. I would now like to turn the conference over to Ken Levy, Vice President, Investor Relations. Please go ahead, sir.

Thanks, Joe. Good morning, and welcome to Iridium's second quarter 2023 earnings call. Joining me on the call this morning are our CEO, Matt Desch, and our CFO, Tom Fitzpatrick. Today's call will begin with a discussion of our second quarter results, followed by Q&As. I trust you've had an opportunity to review this morning's earnings release, which is available on the Investor Relations section of Iridium's website. Before I turn things over to Matt, I'd like to caution all participants that our call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1985. Forward-looking statements are statements that are not historical fact and include statements about our future expectations, plans, and prospects. Such forward-looking statements are based upon our current beliefs and expectations and are subject to risks which could cause actual results to differ from forward-looking statements. Such risks are more fully discussed in our filings with the Securities and Exchange Commission. Our remarks today should be considered in light of such risks. Any forward-looking statements represent our views only as of today, and while we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our views or expectations change. During the call, we'll also be referring to certain non-GAAP financial measures including operational EBITDA, pro forma free cash flow, free cash flow yield, and free cash flow conversion. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. Please refer to today's earnings release and the investor relations section of our website for further explanation of these non-GAAP financial measures, as well as a reconciliation to the most directly comparable GAAP measures. With that, let me turn things over to Matt.

Thanks, Ken. Good morning, everyone. It was another good quarter. We again posted double-digit revenue growth and record operational EBITDA. Interest in Iridium's unique network services is broad-based, running from commercial and industrial customers through to consumer products, and we continue to see tailwinds from our expanding and strategic R&D and network development work for the U.S. government. Since our last call, we were happy to add five more spare satellites to our network, which increases our network's resilience. These were existing ground spares that were built as part of the original Iridium NEXT mission, and we launched them in May on a rideshare with OneWeb. They've all checked out now in space, and our ops team is moving them to position each optimally across our six orbital planes. Though our operational constellation is young and very healthy, I'm glad we took this cost-effective opportunity to get these assets into the sky rather than keep them in storage on the ground. They give us a total of 14 on-orbit spares to enhance the redundancy of our network for years to come. We haven't needed to use any of our spares yet. The primary 66 satellites are not only operating well, but they're performing even better than our original engineering models and statistical expectations, which is also why we're so confident about our extended CapEx holiday. The quality and resilience of Iridium's network remains a strength and continues to be a strong selling point to partners and their customers. This fact and our best-in-class coverage have really differentiated Iridium in the market and made our brand synonymous with reliability, safety, and performance. Many of you may also be aware that Iridium made its second quarterly dividend payment on June 30th. We expect to return about $65 million to shareholders in 2023 through this program and also expect to complete the full outstanding share repurchase authorization. In general, I'm very happy with Iridium's performance and execution this year. We are growing our top line nicely, executing well on operations and innovation, and returning capital to our shareholders. All of this is happening as we prosecute on a growing number of opportunities in the L-band mobile satellite services sector and remain true to what I've often called our lane and identity. There's a lot of disruption underway in our industry caused by the new broadband players, and I'm glad that we're not part of that. We also don't believe that any of the merger activity in the industry, like the recent Viasat-Inmarsat closing, impacts our business. Actually, it's probably been a net benefit to us ever since the deal was first announced in 2021. Iridium is unlike any other satellite company in the industry today. That's because we've largely avoided the allure of delivering commodity services and speeds to instead focus on the niche services that we do better than any other company in the industry. Our commitment to invest in our unique network architecture and service focus has continued to pay dividends, literally. Iridium is very well positioned to capitalize on new demand for L-band services in the commercial sector. Many of the opportunities that I've spoken to over the past 12 months are now taking shape and could add to Iridium's already strong revenue growth and drive additional new users onto our network. A good example of one of these is Iridium Certus 100. You will recall this mid-band service, as we call it, delivers a data connection that is about 35 times faster than our legacy narrowband offering, but still uses low power and requires a very small antenna. The service is perfect for applications where size, weight, and power are considerations, like for the new uncrewed aerial vehicle market or for connectivity to smaller aircraft or helicopters. The service has been adopted by many of our partners, and some of the first applications are now available in market, including our new Iridium GO exec, which is getting good early traction. We expect the new opportunities that our mid-band service creates will help increase ARPUs over time. I'm quite excited specifically about the UAV or drone opportunity. I haven't mentioned it much on past calls because the market was so early in development, but we see a lot of momentum underway recently from all the drone companies we've attracted to be partners. They plan to use Iridium in their command and control architecture. Some of you may have even seen that we recently put out a very innovative white paper on that topic. It introduces an approach and justification for using satellite networks for beyond visual line of sight control of drones, or BVLOS as it's often referred to. The feedback we received over the past few weeks from that paper has been incredible, and it's attracted even more partner interest in industry discussions. BVLOS has been a real issue that needs to be overcome for the growth and long-term success of using drones for industrial applications. The solution proposed in our white paper would enhance situational awareness and safety for remotely piloted UAVs. The study was made with a consortium of partners and has generated a lot of interest from drone operators and regulators who are all seeking to more effectively and safely commercialize the use of UAVs in the nation's airspace. This is a fast-growing industry, and we think Iridium is well-positioned with its Iridium Certus 100 services to support the long-term growth and operation of these aircrafts. Another early example of the utility of Iridium's mid-band services comes from partners like Skytrak, who are leveraging our network to support real-time messaging in fixed-wing and rotorcraft, and even in-flight payment verification for smaller airliners. These services have already gained a lot of industry attention and are being positioned for deployment on narrow-body aircraft run by low-cost carriers. Leaning further into aviation, I'm also very excited about the progress of our partner Honeywell and Collins on their respective Iridium Certus broadband terminals. They've already announced some big customers like Bombardier and Dassault, who will line fit this new equipment on some of their business jet models, which should allow service revenues to start in 2024. These aviation services are incremental to our existing broadband revenues coming from maritime and land mobile and are just in time for the backlog of commercial aircraft orders expected in the coming years. Overall, our broadband subs grew at 14% during the second quarter, helping us pass 10,000 commercial subscribers using our Iridium Certus platform. This is a great milestone to reach since we introduced our broadband services in the maritime and land mobile industries about four years ago, and only recently expanded our Iridium Certus offerings. We continue to take market share in the industry, and our momentum in broadband has remained strong as our partner ecosystem has broadened, and they've experienced our competitive advantage. Next, I want to highlight our emerging opportunity in direct-to-device. We think this offering is a great way to leverage our satellite network and expand into more consumer applications, as well into a as well as into a variety of new industries, starting with Android smartphones using Qualcomm Snapdragon processors. We see a lot of opportunity here and are awaiting adoption and service introductions, as I'm sure you are. The evolving market for satellite connectivity to smartphones is potentially very large, but to really achieve the big numbers some analysts are talking about could take a long time. probably 10 to 15 years when you factor in the need for many players to build and launch new satellites and get global regulatory approvals to achieve the full promise of D2D. We believe the near- to mid-term opportunity is in SOS, like the service being pioneered by Apple with the iPhone 14 and that we plan to support for the Android ecosystem. Our service also provides for real-time messaging, and I expect Apple's will eventually, too. The good news for customers with Iridium technology inside is that our solutions will have our trademark reliability and superior global coverage. I don't have any more news for you today on our D2D rollout. We've completed our qualification work with Qualcomm, but know there's development and integration work required for these smartphone OEMs that adopt this new satellite technology. We don't have very good visibility in the timing or volume of specific smartphones, but from what we do know, we now expect the first activations will move into 2024. Specific information on what products and their specific timing will all come from Qualcomm and their smartphone customers in due time. Our full-year guidance continues to assume that directed device will not be material to our service revenue in 2023. We believe that Iridium's network is ideal for differentiating smartphones using our service by providing a reliable, valuable SOS and messaging capability that is truly global and that users will appreciate. Longer term, we're also excited about the potential Qualcomm provides us in a number of other markets beyond smartphones. The initial development work we've done with Qualcomm on the smartphone capability can be readily tracked on our income statement. You can see it flow through the commercial portion of our engineering and support revenues. As I said, we expect that it will take time for direct-to-device services to be adopted and generate meaningful revenue, but it is clear even from the current limited reach of the iPhone 14 that SOS services on smartphones do save lives, and that's something we want to be part of. Lastly, I want to highlight Arim's work with the U.S. government. You're no doubt aware of our fixed-price EMSS contract with the DoD, but it is our expanding strategic relationship with the government that is our long-term focus and real opportunity. The Space Development Agency's selection of Iridium, along with our partner General Dynamics, to build a ground network and operate their next-generation network is a testament to Iridium's experience and strong relationship we've cultivated with the government through decades of collaboration. Work on this seven-year contract is largely responsible for our record engineering support revenue over the past year, and it should continue to drive new revenue through the end of the decade. Working with FDA on this contract will also help expand our core expertise in the technologies for our own future next-generation network. These are but a few of the projects on which we've been working that are now coming to fruition. Tom will share details on our financial performance from the quarter, but I think you can see that we're making good progress, continue to be well-positioned, and are focused on longer-term growth opportunities. Even in Iridium's core sat phone business, which is largely driven by traditional voice and data services, we're experiencing strong demand. We are a leader in voice and data services, and with our traditional core businesses growing well and strong opportunities in the newer business lines I previewed today, we are confident in our forecast of high single-digit service revenue growth on average through 2025. We see lots of new opportunities after 2025 as well, some of which we will unpack during our investor day on September 21st. For this event, we'll be focusing on our growth plans and cash generation through 2030 based upon the efforts underway with partners today and those that we anticipate in the coming years. We have an exciting long-term vision, which we look forward to sharing with you. We take great pride in the way our business is performing and our ability to add new partners and create new network functionality to drive their growth and support our free cash flow. Like our past, our future is based on continued strong execution and staying in our unique lane. With that, I'll turn the call over to Tom for a review of our financials, and I look forward to your questions.